In an interview with Bloomberg's Stephanie Ruhle and Alix Steel, Muddy Waters
LLC Founder Carson Block said there is 'clearly an issue' with audit of NQ
mobile and it is 'probable' NQ Mobile does not get unqualified audit opinion.
Block went as far to say to Bloomberg Television that NQ mobile is a 'substantial
fraud.'

On Alibaba, Block said "you really, as a U.S. investor, have to ask yourself,
well, why wouldn't they lie to make the numbers better?"

Block: NQ `Substantial Fraud,' Clearly Audit Issues

Courtesy of Bloomberg Television's "Market
Makers"

Highlights:

On his NQ Mobile thesis:

"Well, it's a Chinese company that originally was -- made a security app for
mobile phones. And it claimed to have about 6 million paying users at the time
that we wrote on it. The reality is, it has no more than 50,000 paying users.
And it reported revenue of over $90 million in 2012. We think that its real
revenue is a fraction of that. So it is a substantial fraud.

On what happened between October and today:

"Well, the company actually, it really benefited from this rally in Internet
companies and online companies. So, after we came out with our report, the
stock sold off and the company vehemently denied the allegations and followed
the standard playbook of ad hominem attacks against us, independent committee
that will investigate. And the stock did rally with some of the other China
Internet names. But, when they announced the Q4 numbers, which we think were
really impacted because their auditor, PWC, was likely very present at the
company and looking at things closely, the company reported a surprise loss.
And that's when the recent selloff really started."

On NQ delaying their annual report twice:

"Well, the company - the people who are making these statements, so the U.S.
side quasi-management, they have no idea what is going on with the audit. [We
know that] because they've missed the deadline twice. I mean, they were - first
of all, they were promising that the company would complete its audit on time.
And then on April 30 - and this is something where I think U.S. side management's
conduct recently is reprehensible, if not potentially illegal. That is, on
April 30, the first deadline that they missed for the 20-F, they put out this
very bullish press release talking about how the directors' committee investigation
so far has not found any wrongdoing. Now buried in there was, oh, by the way,
we can't file our 20-F today. So - and the date when the company actually missed
filing its 20-F, the stock closed up 11 percent. So you had investors paying
over $12 a share that day to own this, and it's now at $7 and change."

On why it isn't fair for NQ to wait for the independent investigation:

"Well, first of all, this is -- PWC has not issued an audit opinion. So that's
what's holding up the 20-F. Now, I question what is holding up the independent
committee's results. I mean, so the company said initially, before it missed
the deadline, said in early April that the independent committee's results
would be reported in the 20-F. OK, so PWC won't issue the audit opinion; they
can't file the 20-F. Why aren't they releasing the independent committee's
results? And I think the reason is, I mean, what this pretty clearly says to
me is that, whatever the directors who are on the independent committee say,
it is being driven by the audit opinion. So if the audit opinion comes back
unqualified, then they issue the whitewash statement. If it does not come back
unqualified, then it changes."

On why their legit business partners aren't stepping up:

"Well, what does it mean to be a partner? This company, NQ, has released numerous
press releases over the past two years about partnerships on the U.S. side.
Yet it hasn't materialized into any meaningful revenue. On the flip side, whenever
we asked -- and since our report, others investors have asked -- hey, you have
all this international revenue, roughly 40 percent of your revenue is from
outside of China, but it is not U.S., who are the partners overseas in the
Middle East? Who is accounting for this revenue? They refuse to answer."

On whether he has reached out to Sprint to see the details of their partnership:

"No, we haven't reached out to Sprint. We're a little concerned about doing
that for legal reasons. I mean, we would certainly like companies such as Sprint
and other so-called partners -- I mean, look, I've got a Starwood credit card.
It almost makes me think I should release a press release saying Muddy Waters
is partnering with Starwood. I mean, that's kind of analogous to some of their
press releases. Sprint is actually putting the software on some of the phones,
but, again, we don't know that there's -- that this will in any way be material
in terms of revenue contribution."

On making a lot of money off NQ already:

"Well, we're happy. But it's impossible to know. However, things like this
don't happen to Coca-Cola, OK? There's clearly an issue with the audit. Now,
the company has been telling investors that PWC is just going through some
extra compliance layers. I don't believe that. I mean, again, I fall back on
this notion that the people on the U.S. really have no idea what's going on
with the audit. I mean, PWC is not going to communicate to the company if they're
considering resigning. So it's impossible to say what is going on, but I do
feel that it's probable that the company does not get an unqualified audit
opinion."

On what it will take for him to say 'I was wrong":

"So there are two things. There's being wrong in your thesis that the company
is a fraud, or in the case of Olam that it's incapable of generating cash.
And there's the stock going up. In the case of Focus Media, it is a fraud.
I mean, it was a fraud. We're not wrong. But it was acquired at a premium to
where we shorted it. In the case of Olam, it has not come close to generating
cash. The whole Temasek acquisition of Olam is bizarre, a lot of people in
Singapore have questioned it. I mean, there are times when -- we certainly
don't -- we certainly can look at a stock and say, OK, we need to back off
here and then reenter. I mean, that's always a day by day decision if we see
something really strong. Other times we'll hedge. I mean if you note, again,
the correlation, NQ between NQ and these other China Internet stocks -- but
that's really -- on the whole, the thesis on these companies has never changed."

On Alibaba:

"Well, I do know that Alibaba is a real business. OK that -- I will confirm
that. But here's the thing, for people in China to commit fraud on the U.S.
capital markets, it's completely asymmetrical trade. Again, nobody has been
materially, meaningfully punished from the Chinese side for defrauding U.S.
investors. So you really, as a U.S. investor, have to ask yourself, well, why
wouldn't they lie to make the numbers better?"

On whether there should be fear for U.S. investors looking at any Chinese
company because they simply can't trust the numbers:

"Yes, I think that they should trade at a discount to their Western peers,
because the issues with the numbers, and also with these Internet companies,
you don't actually own the underlying company. You own a derivative of that
company. It's a structure called VIE; it's probably beyond the scope of the
show -- But I do think there's a price for everything, but where these, most
of these Chinese Internet companies trade, I think is more than what they should
be selling for, given the risks."

On what he is looking at next:

Look, could be China, could be U.S., could be European. It's definitely on
this planet. I think the U.S. has done a much better job than the E.U. on being
skeptical about the security risks that the Chinese pose. So for example, we've
been -- we've erected a lot of barriers to Huawei and ZTE coming into the U.S.,
whereas in Europe and the E.U., they have not done that. So I think the U.S.
government is doing very well in that regard relative to the rest of the world.
But, look, as somebody whose e-mail has been hacked, likely by the Chinese,
I'm sitting there thinking, yes, it's about time. By the same token, we are
doing the same things to them. So we'll see how the Chinese react, but I'm
sure this will be an escalating situation for some period of time until we
both pull back."